The Year of the Boar: 2007

All great civilisations tend to be superstitious. Chinese astrology predicts that the Year of the Boar brings a good business climate as well as general feelings of abundance. The year is said to be a feel-good time of benevolence, security, and general prosperity. A year of complacent contentment.

The Year of the Boar comes with warning labels, however: the Boar is prone to over-indulgence. More importantly, it is also known for missing opportunities by wavering, vacillating, and undermining its own abilities.

How will India fare in the Year of the Boar On the one hand, there is reason to feel good. Indias GDP growth has averaged 8% over the past few years. The 2006 estimates vary, but even the World Bank expects that the growth rate will come in at just under 9% for the year. Most forecasts predict only a modest slowdown over 2007 and 2008. The stock market has been surging: the Sensex is up 4,000 points since the beginning of 2006, and investor interest will continue as corporate results start coming in.

The Year of the Boar also brings the promise of wider-spread prosperity. India still has a long way to goas evidenced by the recent release of NSSO data showing that a third of the rural population lives on less than Rs 12 a daybut public and private initiatives are making inroads into rural India as well as poor urban areas. Ambitious public sector initiatives such as the National Rural Employment Guarantee Scheme, Bharat Nirman, or the National Urban Renewal Mission clearly intend to make a difference. The private sectors intensifying focus on the bottom of the pyramid as a market should accelerate these areas integration into the overall growth story. Agriculture may very well turn the corner soon as the supply chain from farmers to markets improves, and innovations in farming disseminate.

On the other hand, the warning labels cannot be ignored. The Boars tendency for over-indulgence is barely in check. The RBI report on State Finances for 2006-07 shows some improvement in states deficits and debt reduction, but this is not uniform across states. The Sixth Pay Commission will likely recommend a pay increase. The Eleventh Plan Approach papers call for more public investment rests on optimistic growth targets, and contains ambiguous plans for locating the resources. The discussions about adjusting the FBRM targets, or suspending them temporarily, only postpone the underlying reality that India will either need to raise tax realisation or do more with existing expenditure.

Resolutions are easier made than kept. It is easy to say keep a prudent fiscal policy, and less obvious what spending plans should be reduced or which taxes adjusted

More tensions are on the horizon as rising energy import costs affect Indias external balance.

India is also vulnerable to vacillation on reforms. Its political institutions, a dense network of politicians and bureaucrats across three levels of government without a clear coordinating body or ethos, seem almost designed to delay. Simply counting the number of institutions or officials involved in any decision gives a sense of the challenge. All concurrent subjects (and many of the policies on the Union and State lists too) require centre and state governments, often with different political constituencies and ideologies, to work together. Most policies fall under the purview of several ministries or independent depart-mentswith 51 of them it would be hard to avoid overlap.

Within the ministries and public sector bodies, detailed procedural norms for procurement, consultation, and audits shape decision making as much as the policy goals themselves.

Heres one former ministers comment on the system: No enemy of India could devise a system better designed to paralyse decision-making. Administration in India has degenerated into a system of endless correspondence and meetings as a substitute for action.

To make matters worse, India has limited functional and purposive mechanism for coordination across this array. Inter-governmental and inter-ministry coordination takes place in ad hoc meetings, committees, or bilateral negotiations. The Inter-state Council meets, but irregularly, and its decisions are not binding.

Inter-ministerial working groups have been created for some issues, but longer-standing institutional changes such as single window clearance have lagged.

Parliament could be a natural coordinating body across all levels of government and ministries, but it has limited resources for doing so. Members of Parliament are given allowances for housing, but not for research. Most of the research is done by the departments themselves. Many of the committees that examine bills ex-ante are mostly ad hoc committees that are dissolved after the bill is dealt with. Many bills pass without comment or discussion.

Policy resolutions for the Year of the Boar are simpler to state than implement. It is easy to say, keep a prudent fiscal policy and less obvious exactly what spending plans should be reduced or which taxes adjusted. Likewise, it is easy to say, streamline decision making, but less obvious which departments, offices or levels of government should be made to give up their seats at the table for the sake of simpler processes. We could recommend empowering Parliament, but that would beg the question of why it has not exercised its own prerogative to make the changes needed to gain more relevance.

We resolve, instead, to devote the next few joint pieces to untangling the underlying institutional features that preserve complacency and prevent change.

In the meantime, Happy New Year.

Regular columnist NK Singh and Dr Jessica S Wallack, a professor of economics at University of California, are collaborating on a book on infrastructure reforms on India. Essays based on their research will appear on this page